Rational Mutual Fund and ETF Selection
Rational selection of equity and bond mutual funds and ETFs – An Overview
Given the extremely large variety and number of available fixed income and equity investment mutual funds and ETFs, investors need a rational basis to select among them. Without scientific selection criteria and a good understanding of which factors are more or less likely to increase risk-adjusted returns, investors will make erroneous decisions based on false assumptions.
Most individual investors want to select bond and equity mutual funds and exchange-traded funds (ETFs) to hold for a long duration.
Many would also like to invest additional amounts automatically into these funds over time and not to have to monitor them frequently. These investors are less concerned about short-term fluctuations than about their longer-term capital appreciation goals. In addition, of course, they hope to choose mutual funds and ETFs with exceptional performance and to avoid funds that consistently trail the pack.
Such investors want to use mutual screening or selection criteria to identify better funds and to minimize the need for frequent changes due to inferior performance. Individual investors are better served, if they understand what the scientific investment literature says about potential selection criteria.
These articles discuss valid fund screening and selection criteria:
- Avoid mutual funds and ETFs with sales commissions and 12b-1 fees
- Choose mutual funds and ETFs with lower investment management expenses
- Avoid mutual funds with higher investment portfolio turnover
- Avoid very large actively managed mutual funds
- Choose sufficiently mature mutual funds and ETFs
- Choose mutual funds with a minimum economical portfolio size
- Evaluate historical investment performance, but only after using other investment screening criteria
To implement these investment fund selection criteria, you need on-line fund screening applications supported with up-to-date data.
The Skilled Investor has also provided overviews of some investment fund screening applications and databases that are available on the web.
Many of these selection criteria are associated with investment costs, which are a dominant issue in efficient personal investment management. Click here for more articles on investment costs: Controlling Investment Costs
Tags: sales commissions
Personal Financial Planning
- American Funds – EuroPacific Growth Fund – Class A Shares (AEPGX) get a +2 Fund Authority Score (The diversified investment fund strategy of American Funds' EuroPacific Growth Fund
According to American Funds' Annual Report for the EuroPacific Growth Fund, the fund "seeks long-term capital appreciation by investing primarily in the securities of companies based in Europe and the Pacific Basin." American Fund's 497 filing on the U.S. Securities and Exchange Commission EDGAR system [...])
- Conclusion to: What Is a Well-Diversified Investment Portfolio? (<<-- Continued from Part 1
In addition to showing that large numbers of additional stocks are required to achieve measurable improvements in diversification, the Evans and Archer study clarified other requirements for a well-diversified portfolio. The number of stocks selected for a highly diversified portfolio also depends on what one actually means by "the market."
To achieve [...])
- The Kind of Financial Advisor You Need (
The kind of financial advisor you need - A Tip from The Skilled Investor
Good or bad, financial advisors are expensive. If you need a financial advisor's help and you carefully select a good financial advisor, the value of the personal finance and investment advice that you receive might easily repay the advisor cost. However, bad [...])
- Does it matter how financial planners and investment advisors are paid? (
Yes, it can matter significantly how a financial advisor is paid.
The heart of the compensation issue is an advisor’s potential "conflict of interest" with respect to payments from third parties. Does third party compensation change the quality of the recommendations that the advisers make? If an advisor works on sales commissions or accepts other third [...])
- American Funds – Capital World Growth and Income Fund – Class A Shares (CWGIX) warrant a +2 Fund Authority Score (Fund Authority Scores rate mutual funds and exchange traded funds (ETFs) on the most important economic factors that influence individual investors' net long term diversified investment fund performance. The Skilled Investor developed the Fund Authority Score system to provide individual investors with concise and objective summaries of mutual funds and ETFs for comparisons within investment [...])
- Select investments rationally – Step 6 of 10 Financial Planning Steps in the Right Direction (CLICK HERE TO READ THE SKILLED INVESTOR's OTHER ARTICLES ABOUT THESE "10 FINANCIAL PLANNING STEPS IN THE RIGHT DIRECTION
Given the extremely large number and variety of available securities, investors need a rational basis to select among them. Without rational selection criteria and a good understanding of which factors are more or less likely to increase [...])
- Fidelity Spartan 500 Index mutual fund (FSMKX) achieves the Best +10 Fund Authority Score (
The Standard & Poors 500 stock index is the most common equity index fund benchmark in the U.S. The S and P 500 tracks about 75% of publicly traded U.S. equity market asset value. The dominant issue in choosing among passively managed index mutual funds and ETF funds benchmarked against the S & P 500 [...])
- Fund Authority Scores for Stock ETFs and Mutual Funds – Fund maturity and operating efficiency (
Fund Authority Scores rate mutual funds and ETFs on the most important economic factors affecting long term diversified stock or equity investment fund performance. This article explains the investment fund maturity and operating efficiency factors.
<<-- Go to Part 2
Parts 1 and 2 of this article discussed the first three, most heavily weighted factors used in [...])
- The John Bogle Blog and His Financial Article About ETFs (John C. Bogle's Blog and his article about ETFs
This article is a heads-up to people interested in investment blogs and personal finance blogs.
John C. Bogle, the founder of The Vanguard Group, Inc., has a blog called The Bogle eBlog. (If you are wondering about "eBlog," it is an anagram of Bogle.) Mr. Bogle just posted [...])
- Can you really beat the stock market? (
You are not likely to beat the stock market, despite all the cheer leading from the securities industry and the financial media.
When you try to beat the public securities markets, unfortunately you are more likely to trail the market’s return, because of extra costs, taxes, and investment mistakes.
The idea that investors can beat the market [...])
- Vanguard Total International Stock Index Fund (VGTSX) lands a +9 Fund Authority Score (The Vanguard Total International Stock Index mutual fund is a low cost alternative for broad, passive index investing internationally. This fund is a composite of three other Vanguard international funds: the Vanguard European Stock Index Fund (55.7%), the Vanguard Pacific Stock Index Fund (24.1%), and the Vanguard Emerging Markets Stock Index Fund (20.2%). The percentages [...])
- Developing Fund Authority Scores for ETFs and Mutual Funds (
Select mutual funds and ETFs with the most important economic factors that affect long term, diversified, and risk-adjusted investment fund returns
Good things are born small and grow over time. Regularly, The Skilled Investor evaluates individual mutual funds and ETFs and adds new articles that use the Fund Authority Score rating system. To be alerted when [...])
- Fund Authority Scores for Stock ETFs and Mutual Funds – Management expenses, sales loads, and trading cost factors (
Fund Authority Scores range from -10 to +10 and measure five factors for diversified stock or equity investment funds: 1) annualized management and sales expenses, 2) trading costs, 3) historical performance, 4) fund maturity, and 5) operating efficiency.
Go to Part 2 -->>
This article explains how Fund Authority Scores rate stock or equity mutual funds and [...])
- Diversify fully within asset classes – Step 4 of 10 Financial Planning Steps in the Right Direction (CLICK HERE TO READ THE SKILLED INVESTOR's OTHER ARTICLES ABOUT THESE "10 FINANCIAL PLANNING STEPS IN THE RIGHT DIRECTION."
Diversification is genuinely an investment “free lunch,” and it is a key contributor to improved investment risk management.
Diversification has become an axiom of personal investing, because the specific risks of businesses and other investment entities can be [...])
- Diversify To Avoid Investment Fraud (Another kind of investment diversification that individual investors should consider important relates to the failure or corruption of the financial industry intermediaries and fiduciaries that hold individual investors’ securities.
This meaning of diversification has nothing to do with scientific investment principles related to optimal portfolio diversification. However, it is still very important. Prudent investment practices would [...])
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